Predict the outcomes of these policies

ainwood

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Two policies have been promoted by parties in the run-up to New Zealand elections. The fact that its in New Zealand doesn't matter - I am interested in seeing what the forward-thinking of you believe will happen to any society that introduces these.

Policy 1:
Interest on student loans dropped from 7% to 0%, for anyone who, on graduating, remains in the country (the interest kicks-in again if they leave).

Policy 2:
Substantial welfare payments to families (and solo parents) who are working and have children. The more children you have, the more you get. Even people earning well-above the average wage qualify for these hand-outs. People with no children get nothing.


So - think ahead to the economy in general, the social impacts etc.
 
Policy 1: I don't think it will be too much of a deterent to leaving. It emigrating may drop a little.

Policy 2: Would that just encourage people who can't afford children to get children?
 
As to the first, it will discourage the brain drain (which I'm guessing is relatively minimal in an industrialized country like NZ) and encourage growth of the economy by providing a scarce resource (skilled labor) and probably increasing technological know-how. The rate change will not only keep students in, but also greatly encourage more people to go to college.

As to your second policy, it will increase the growth rate of the population, of course, and having children for the hand-outs will probably become common, though it will still be successful if the goal is to increase the birth rate.
 
I agree with both of them

1. College educations are subsidized by the state, and therefore I think it's logical that the state wants people who they helped to pay their tuitions and so on, will use their knowledge to benefit New Zealand in this case.
It might keep the highly educated people at home, which is good for the economy (higher wages, higher tax income without raising taxes)

2. Perhaps that's the only way to maintain your population and this might stop people from having no children for the sole purpose of "not losing money" or "children endanger my career"
Natality should rise and people who help towards that goal should be rewarded, but I do fear though that natality will especially rise among the poor.
 
I don't know how substantial these payments for kids are, but we've got a similar system in Sweden, and nobody (sane) is getting kids just to claim the benefits, because you can't realistically raise a child on only that money.
 
Overpopulation, huge deficits.
 
Yom said:
As to the first, it will discourage the brain drain (which I'm guessing is relatively minimal in an industrialized country like NZ) and encourage growth of the economy by providing a scarce resource (skilled labor) and probably increasing technological know-how. The rate change will not only keep students in, but also greatly encourage more people to go to college.
The brain dain is very high in many industrialized countries which have a stong progressive tax system where the rich are highly taxed. I'll be moving to the USA for the same reason, in Belgium the taxes if you earn more than the average are just way too high.
 
Yom said:
As to the first, it will discourage the brain drain (which I'm guessing is relatively minimal in an industrialized country like NZ) and encourage growth of the economy by providing a scarce resource (skilled labor) and probably increasing technological know-how. The rate change will not only keep students in, but also greatly encourage more people to go to college.
Whilst the 'brain drain' is real (30,000, or about 0.75% of the population head to australia every year), only 6% of peole who have student loans actually leave. The concern is the growing debt, and this will supposedly help people pay-off thier debts. What do you think will happen to the total amount of student debt?

As to your second policy, it will increase the growth rate of the population, of course, and having children for the hand-outs will probably become common, though it will still be successful if the goal is to increase the birth rate.
Stated goal is 'aggressive attack on child poverty'. Think it will help that (considering that people on above-average incomes qualify?)
 
SonicX said:
The brain dain is very high in many industrialized countries which have a stong progressive tax system where the rich are highly taxed. I'll be moving to the USA for the same reason, in Belgium the taxes if you earn more than the average are just way too high.
Hence the qualifier "relative." It's not nearly to the degree that developing countries face.

ainwood said:
Whilst the 'brain drain' is real (30,000, or about 0.75% of the population head to australia every year), only 6% of peole who have student loans actually leave. The concern is the growing debt, and this will supposedly help people pay-off thier debts. What do you think will happen to the total amount of student debt?
I'm not sure as to that. It could go either way, since (assuming this applies to all loans) no interest would encourage students to go to graduate school. Since inflation is greater than 0% and further education will increase their incomes, though, then it'll probably be effective, but it's a pretty sound economic policy when it comes to promoting growth, as well.

ainwood said:
Stated goal is 'aggressive attack on child poverty'. Think it will help that (considering that people on above-average incomes qualify?)
Perhaps. There's no reason to give these benefits to rich people, but it doesn't mean that the benefits given to poor people won't help. There's room for abuse, though, since the money is just for having the child.
 
ainwood said:
Whilst the 'brain drain' is real (30,000, or about 0.75% of the population head to australia every year), only 6% of peole who have student loans actually leave. The concern is the growing debt, and this will supposedly help people pay-off thier debts. What do you think will happen to the total amount of student debt?

Might make some difference to the amount of debt, but I doubt it will make a lot of difference to the number of people in debt. If you're struggling to pay off a student loan, the slight reduction won't make it much easier, and if you've graduated and have a job that can pay the loan off, you probably won't have a problem paying off the interest as well.

Stated goal is 'aggressive attack on child poverty'. Think it will help that (considering that people on above-average incomes qualify?)

Nope. I can think of much better ways to spend the money to improve children's standard of living. It might be an incentive for parents already receiving welfare payments to go back to work, knowing it won't cost them as much of their govt money, but that's about it.
 
Policy 1:
Interest on student loans dropped from 7% to 0%, for anyone who, on graduating, remains in the country (the interest kicks-in again if they leave).

What is the cap on a student loan and how many students are there?

Policy 2:
Substantial welfare payments to families (and solo parents) who are working and have children. The more children you have, the more you get. Even people earning well-above the average wage qualify for these hand-outs. People with no children get nothing.
That might encourage population growth - a problem most Western nations are facing. But I think it would be much better to cut some taxes than trust the government with the extra money...
 
Perfection said:
Must the 0% interest loans be paid back in a certain installment plan?

Currently must begin paying back minimum amount once gross income is over NZ$15,000.

NZ Income Tax rates:
19.5% up to NZ$38,000
33% NZ$38-60,000
39% NZ$60,000+

I'm not sure how it works, but I think an extra 1% is added for state accident compensation insurace :p cheaper than it was privatised.

Tax rebates for earners under NZ$9800 who work 20 hours or more per week - rebate = 15%. Also earners up to 38,000 in some cases eligable for 21% rebate.

Re: Topic 2
"Families earning under $35,000, and which have children, will effectively pay no tax at all".

Link:
http://xtramsn.co.nz/news/0,,13097-4676804,00.html

I, personally, would like to see a 10% tax bracket for earnings up to NZ$10,000 - it benefits everyone, but goes a long way to addressing poverty.

It seems to me we could have this and all the other promises too...
 
ainwood said:
Two policies have been promoted by parties in the run-up to New Zealand elections. The fact that its in New Zealand doesn't matter - I am interested in seeing what the forward-thinking of you believe will happen to any society that introduces these.

...

So - think ahead to the economy in general, the social impacts etc.

My answers: Overall, I think the affects will be minimal - slightly better for retaining trained people, slightly more in training, a little more money to the low and middle classes. The second a very slight aid to families, few more children and earlier, but more importantly, better able to pay for children's education.

Still, the affects would seem to be minimal over time.

Do you have any ideas you'd like to share?
 
Yom said:
Perhaps. There's no reason to give these benefits to rich people, but it doesn't mean that the benefits given to poor people won't help. There's room for abuse, though, since the money is just for having the child.
How can it be abused? :confused:
And why should only the poor enjoy public services? The rich are paying taxes too, so they have just as much right to public services as the poor!
 
Mountain-God said:
Do you have any ideas you'd like to share?
Why yes! I'm glad you asked ;) (and welcome to CFC) :)

My answers: Overall, I think the affects will be minimal - slightly better for retaining trained people, slightly more in training, a little more money to the low and middle classes.
As I see it, people will now take out loans to the full extent that they can - if only to put it in the bank and earn interest. Parents won't bother saving for their children's education - why save when the student is going to be given free money? Again, borrowing increases.

Along with the increased number of students taking out loans, the voluntary replayments will drop to zero - which I believe will, in terms of total student debt, wipe out any effects of no interest. Summary - net student debt will grow. The government still has to find working capital to finance these loans - that means the taxpayer still has to come-up with it in the short-term - even if they get it back, it will mean more moeny required for students.

Now - I don't think student debt is bad per-se. The average student debt is 14,000 - someone on minimum-wage gets $9.50 an hour - around $300/week net. Now - if they choose to live on (say) $250/week (double the 'living allowance' for Uni), then they can pay there student loans back in about 6 years. If they earn more than minimum wage, or live on slightly less - then they can pay it back faster. BTW - I paid mine back (14,500) in 3 years on $23,500. I believe that people don't pay back student loans not because they can't, but because they choose not to. Lets face it - you leave uni and start earning - are you more interested in spending money on consumer durables and generally improving your lifestyle; or paying off a cheap (and lets face it - even now, 7% is cheap) loan?


The second a very slight aid to families, few more children and earlier, but more importantly, better able to pay for children's education.

Still, the affects would seem to be minimal over time.
The ability to have more money for children's education is good - but education is being covered by the student loans. I actually believe that this will incentivise the people who can't really afford to have more children to have them anyway - the low income earners. People who look short-term and just see the extra money coming in; not looking at the amount it actually costs to raise kids. I think they will actually find themselves worse-off (in a strange sort of way). I think it is going to cost a fortune to administer - having to process all the applications from thousands of people - and why get people who are in the top tax-bracket to apply for welfare? :crazyeye:

Those who are single and childless are going to be quite annoyed at this - targetted policies that specifically exclude them. Unfortunately for New Zealand, its these people who are the most mobile, and hence the people that we risk losing overseas.
 
So let me get this straight. There is no limit to the time the loans are to be paid (I suspect there is a limit for the size...)? If I were a student in NZ I'd be stupid to actually pay any of the money back. I can simply let them lie there as figures in a bank to continue to accumulate 0% interest ;) .
 
Aphex_Twin said:
So let me get this straight. There is no limit to the time the loans are to be paid (I suspect there is a limit for the size...)? If I were a student in NZ I'd be stupid to actually pay any of the money back. I can simply let them lie there as figures in a bank to continue to accumulate 0% interest ;) .
Not quite - you have to pay it back at 10% incremental tax over some threshold (something like 15,000 I think).
 
Slightly off topic (no predictions, just opinions):
ainwood said:
Policy 1:
Interest on student loans dropped from 7% to 0%, for anyone who, on graduating, remains in the country (the interest kicks-in again if they leave).
Lower the taxes instead, that will encourage graduates with a education needed on the labour market to stay. Who cares if arts students etc emigrates? :p Lowering taxes can be politically hard to sell though, and this could actually be a way to covertly lower taxes for those with higher incomes (less precise though). After some years you can have a reform where taxes are lowered for higher incomes in exchange for students paying interest on their student loans...
Policy 2:
Substantial welfare payments to families (and solo parents) who are working and have children. The more children you have, the more you get. Even people earning well-above the average wage qualify for these hand-outs. People with no children get nothing.
Not testing income is an idea I support. Income limits creates marginal effects: ppl close to the income limits might abstain from raising their income because the raise is neutralised by the loss of the welfare payments (which is why I like the ideas of citizens pay and flat tax). Testing income also requires more bureaucracy and creates cheating possibilities.
 
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